Even When Trump Gets Fired, He Wins

He no longer heads his casino arm, which is filing for bankruptcy. But this may revive the outfit, and his brand's value is still rising

By Diane Brady

Donald Trump knows how to handle a hit. If it's a home run, like his reality show, The Apprentice, he'll milk it and pump it for every penny it's worth. And even a body blow, like being stripped of operational control in the struggling Trump Hotels and Casino Resorts (DJT ), is taken in stride.

Technically, Trump has been fired -- at least as chief executive of Trump Hotels & Casino Resorts. He'll stay on as chairman and retain 25% control of the company. The 57-year-old billionaire also agreed to reduce his stake and give up operational control of the only publicly traded part of his empire as part of a deal announced on Aug. 9. Under the plan, which includes filing for bankruptcy, Credit Suisse First Boston (CSR ) will gain majority control of the troubled operation, which owns three Atlantic City casinos. The company's $1.8 billion debt will also be reduced to about $1.25 billion, while its interest rate will be cut to 7.9%, from 12%.

BRANDING ADVANTAGE.

  But don't write off The Donald as a loser. If anything, he has displayed a remarkable ability to distance himself from the persistent failure of his casino operations. As he notes, it's a small fraction of his empire -- though the much-cited figure of 3% is hard to confirm, given the complex arrangements of his real estate deals. What's clear is that years of losses, miserable stock performance, and poor management of his public company have yet to dent Trump's reputation or brand. He's estimated to be worth about $2.5 billion -- and many think that his value is on the rise, rather than in decline.

In fact, the strength of Trump's wouldn't-you-love-to-be-like-me brand is a key reason the billionaire was able to start clearing away the debt that has burdened the casinos since their inception. The refinanced company will get to use his trademark and image, royalty-free, in all gaming and casino ventures from here on.

No wonder Scott Butera, Trump Hotels and Casino Resorts' executive vice-president and director of corporate and strategic development, claims that staffers are actually very excited by the new ownership structure. "This gives us the platform we need to grow the Trump brand," says Butera. "We're finally at the point where we're addressing [the debt] and addressing it in a significant way."

LITANY OF REASONS.

  Trump, despite his diminished holdings and role, will be an even bigger force in the company from now on, Butera insists. "We're finally starting to do the things Donald wants," says Butera, who cites "technical reasons" for doing it through Chapter 11. "We'll be using his marketing ability, his political savvy, his instinct for deals."

What they don't need, it seems, are his management instincts. The outfit has already been through bankruptcy, having filed for protection back in 1992. It got another much-needed capital infusion in 1995, when he took the whole thing public. Since then, Trump Hotels & Casino Resorts has consistently posted net losses and watched its stock price plummet from a brief high of $34 to about $1.85. That's less than the cost of a New York subway ride -- not that Trump would choose such pedestrian means of getting around his favorite city.

Trump is quick to cite a litany of reasons for the failure. In his latest letter to stockholders, he cites "a very stormy and cold winter," the war in Iraq, the opening of a rival casino, and delays in the completion of a return ramp built by the state of New Jersey. Every year, there's something or someone to blame.

REASON TO REJOICE.

  It's certainly true that gambling is a tough business to be in these days, with the expansion of casinos on Native American reservations and the recent tough economy. Witness the consolidation in the industry, with MGM Mirage (MGG ) agreeing to purchase the Mandalay Resort Group (MBG ), while Harrah's Entertainment (HET ) is taking over Caesars Entertainment (CZR ) (see BW Online, 7/27/04, "Harrah's Pit Boss on the Caesars Deal"). Getting more critical mass, especially outside Atlantic City, might be just the remedy for Trump's casino operations.

In the meantime, Trump has far more reason to rejoice these days than dwell on his problems. Along with the new injection of money into the casinos, he's set to launch a new clothing line and will likely have another hit with the second season of The Apprentice, which airs on NBC on Sept. 9. He spun that experience into another bestseller, titled How to Get Rich: Big Deals from the Star of The Apprentice. If Trump manages to resurrect his casino assets with his latest move, he'll no doubt use it as fodder for the story of yet another comeback.

Brady is associate editor for BusinessWeek in New York

Edited by Beth Belton

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